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Before making any recommendation for the use of improved seeds, policy makers have to ensure that the improved seeds are superior to the local ones. To generate information on the financial viability of improved seeds, this paper computes the gross margin that farmers lose when they fail to use these inputs. Using the switching regression method, it then examines the contextual factors that affect the income foregone if farmers fail to use improved seeds.The study is based on the fifth round of the Ethiopian rural household survey data taking wheat as a case. The estimated foregone gross margin ranges from 277 to 886 Birr per hectare and the total gross margin foregone at the national level ranges from 295 million to 946 million Birr per year. On the whole, the results suggest that, even though failure to use improved seeds involves foregoing financial benefits, it varies across farmers and farming systems. Not all farmers forego equal financial benefits.The regression results show that the gross margin foregone increases with labour use, fertilizer use, farmers' experience with the extension package, wheat marketing, rainfall suitability, and wheat price index. On the contrary, it decreases with plot quality, education, input price index, oxen ownership, and chemical use. The results imply that improved seeds will have better income generating capacity when accompanied by other complementary services. Agricultural extension policy should establish targeting principles based on the comparative advantage of the respective seeds. On the whole, blanket recommendation of improved seeds for all farmers and farming systems across the board has to be re-visited


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